World stocks fall as European fears grip investors

World stocks fall as European fears grip investors

LONDON — Fears of a Europe-wide recession undermining political will to tackle the region’s debt crisis gripped financial markets on Monday, sending shares and the single currency lower and driving demand for safe-haven assets.

U.S. stocks fell sharply soon after opening, with the Dow Jones industrial average, the Standard & Poor’s 500 Index and the Nasdaq Composite Index all dropping more than 1%. Canada’s TSX was down 1.5%.

Wal-Mart Stores Inc sank more than 4% after the New York Times reported officials at the retailer stymied an internal investigation into allegations of extensive bribery at its Mexican subsidiary.

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European stocks fell, as well, with the FTSE Eurofirst index of top European shares off 2.17%, after having posted its best week in a month. The euro fell against both the dollar and the yen, dropping 0.68% to $1.3131 and 1.17% to 106.50 yen.

The economic outlook for Europe was hurt by poor flash Purchasing Manager’s Indexes (PMIs) for April, which are a guide to future activity. The reports for the eurozone, Germany and France pointed to a much faster rate of economic contraction across the debt-laden region than had been expected.

Dutch Prime Minister Mark Rutte said on Monday he has tendered his cabinet’s resignation to the Dutch Queen, adding that she will consider it and has asked in the meantime for the government to keep doing whatever was in the country’s interest.

Rutte did not say whether elections would be called.

Investors were also absorbing the implications of the victory in the first round of France’s presidential poll of the Socialist Francois Hollande, who has promised to renegotiate a European budget pact.

“It’s beginning to look like the perfect storm,” said Stewart Richardson, chief investment officer at RMG.

“If there is a Dutch election coming up soon it just adds to the whole cocktail of worries for the market.”

Voters in Greece also go to the polls on May 6, where the only two major parties that back the EU/IMF bailout plan are just ahead according to the latest polling.

The single currency dropped 0.35% to $1.3150, down from a two-week high on Friday, and was expected to stay under pressure before key debt auctions due later this week by Italy and the Netherlands.

The French and Dutch developments overshadowed the weekend agreement by the world’s major economies to provide an additional $430 billion in new crisis-fighting funds to protect the global economy from Europe’s problems.

EQUITIES TUMBLE

Europe’s top shares were bearing the brunt of investors’ fears after a lower start on data from China showing factory output in its economy was still contracting. The data also suggested the downtrend may be over.

The FTSE Eurofirst index of top European shares fell 1.9% to 1026.27 points, having just posted its best week in a month. Banks, which are exposed to Europe’s debt problems, were down 3%, led by Amsterdam-listed ING Groep, which fell 7.5%.

April’s PMI for the eurozone’s dominant service sector fell to 47.9 from 49.2 in March – a five-month low and below forecasts in a Reuters poll of more than 40 economists which projected a rise to 49.3.

But the impact of the data was increased by a separate PMI for Germany which showed Europe’s largest economy had seen its export-oriented manufacturing sector shrink at the fastest pace in nearly three years in April.

“They’re all telling us that the (eurozone) economy has lost a lot of momentum. It’s not even true now to say this is a problem of the periphery, because the core economies would appear to be suffering too,” said Peter Dixon, global equities economist at Commerzbank.

The news sent safe-haven German government bond yields to record lows of 1.584%, while yields on the ultimate safety play, 10-year U.S. Treasury notes, fell 4 basis points to a seven-week low of 1.921%.

The cost of insuring Dutch debt against default jumped to its highest since January and the premium investors demand to hold the bonds, rather than equivalent German benchmarks, surged to the highest level in three years.

The mixed signals on China’s likely demand for metals in the latest HSBC PMI was not enough to offset the worries over Europe in the commodities market, where three-month copper on the London Metal Exchange fell 1.8% $8,043.50 a tonne.

Gold prices eased towards $1,630 an ounce, extending the two% losses it has posted so far this month.

Gold watchers are expected to turn their attention shortly to the Federal Reserve’s two-day policy meeting from Tuesday, at which the potential for more monetary easing is set to be addressed.